Market Slump Deepens as Global and Domestic Pressures Persist:
In October 2024, the Nifty 50 and S&P BSE Sensex suffered notable drops of 6.22% and 5.83%, making this their weakest monthly performance since March 2020. Driven by a mix of global and domestic pressures, Indian equities declined sharply, with key indices hitting new lows for the month. This downward momentum has continued into November, notwithstanding a temporary uplift seen during the Muhurat trading day.
The market faced persistent weakness due to softer-than-expected Q2 FY25 earnings, which cast doubt on the pace of economic growth. Many companies reported earnings below expectations, leading to a wave of earnings downgrades and dampening investor sentiment. Among the Nifty companies that have disclosed results, earnings remained mostly stagnant year-over-year, highlighting pressure from subdued corporate performance in key sectors.
October also saw one of the highest monthly foreign portfolio investor (FPI) outflows on record, with ₹1.14 lakh crore withdrawn from the secondary market, surpassing outflows seen at the onset of the COVID-19 pandemic. Despite this trend, FPIs remained active in primary markets, with nearly ₹20,000 crore invested, possibly reflecting selective opportunities amid high valuations in the secondary market.
The record outflows contributed to a weakening rupee, which dropped to an all-time low of ₹84.20 against the US dollar. Additionally, China’s upcoming potential stimulus announcement, could further impact capital flows from Indian markets.
On the domestic front, signs of slowing urban demand added to the market’s challenges, as rising living costs and food inflation have constrained consumer spending, eroding purchasing power Heightened market volatility has also been driven by external factors, including the strengthening US dollar, Middle East geopolitical tensions, and rising crude oil prices.
Sectoral performance:
Across Indian equities, October brought significant sectoral corrections in response to the broader market decline. The financial sector faced challenges amid concerns over slowing credit demand and softened earnings growth. The consumer goods sector saw pressures due to a noticeable strain on urban consumer spending, driven by rising inflation and higher living costs. The automotive sector similarly experienced a slowdown, with reduced consumer demand and elevated input costs impacting sales and production. Infrastructure and engineering sectors struggled as government spending tapered off, constraining growth within these areas. Lastly, energy and commodities were impacted by broader market volatility and a recent increase in crude oil prices, which intensified the strain on these sectors.
In the following sections, we provide a more comprehensive examination and detailed insights of some major sectors:
Auto:
In October 2024, the auto sector displayed mixed results across segments, reflecting both growth and challenges. The two-wheeler (2W) market experienced strong momentum, with domestic wholesale volumes increasing by around 11% year-over-year (YoY) and 6% month-over-month (MoM). Exports in this segment also rose by 23% YoY and 2% MoM. Domestic passenger vehicle (PV) sales grew modestly at 1-3% YoY and saw a 10-12% MoM boost, driven primarily by select manufacturers, although gains were partially offset by underperformance among others. Commercial vehicles (CVs) showed stable sales YoY, with a MoM increase of 9%, largely supported by high bus volumes, while medium and heavy truck volumes faced pressures.
Within the PV segment, domestic sales posted a modest growth rate of approximately 3% YoY, although performance varied. Some segments, such as SUVs, saw robust growth, while others, particularly entry-level cars, reported declines. Strong PV sales growth was observed among several manufacturers, although select brands reported flat or negative results, tempering overall gains.
In the CV segment, domestic dispatches rose slightly, up 1% YoY and 9% MoM. While demand for buses drove growth, medium and heavy commercial trucks lagged, with growth forecasts for FY25 remaining low due to high base effects, limited fleet utilization, and moderate replacement demand. Anticipated growth for CVs is expected to remain in the low single digits.
The two-wheeler segment continued its strong performance, with overall dispatches rising approximately 13% YoY. Domestic 2W sales increased by 11% YoY, while exports also saw a notable rise. Factors contributing to 2W growth include pent-up demand in rural areas, new model introductions, and festive season promotions.
In the tractor sector, domestic wholesale volumes recorded an encouraging uptick of 29% YoY for October, supported by favorable agricultural conditions such as strong monsoon rainfall, improved reservoir levels, and a successful Kharif harvest. These conditions, along with favorable Rabi season terms, are expected to bolster tractor demand in the coming months.
Looking ahead, the medium-term outlook favors growth in the 2W segment over PV and tractor sales, while the CV segment remains cautious, with performance likely constrained by economic and industry-specific factors.
IT:
In Q2 FY25, the IT services sector (including Tier-1 and Tier-2 companies) saw continued recovery in operating performance, with median sequential growth at 2.0% in constant currency, up from 1.2% in the previous quarter. Reported growth in USD terms also improved, reaching 2.6% quarter-over-quarter (QoQ) and 4.3% year-over-year (YoY), benefiting from favorable currency effects. Growth momentum was broad-based, marking two consecutive quarters of stability, though some asset-intensive and consumer-focused verticals displayed softer results.
The deal environment remained robust, with deal total contract value (TCV) for both Tier-1 and Tier-2 firms close to USD 20 billion, showing only a minor decrease from the previous quarter’s USD 21 billion. Increased discretionary spending and short-term projects are expected to enhance deal conversions, despite challenging macroeconomic conditions. As a result, annual contract value (ACV) is likely to rise, aided by improving conversion rates.
Headcount additions showed substantial growth, indicating positive mid-term demand trends, with many companies achieving optimal utilization and reducing subcontractor reliance. However, ongoing geopolitical tensions may slow down sales cycles and introduce additional scrutiny around deal closures. While margins showed improvement beyond expectations in Q2, the scope for further gains in FY25 may be limited due to wage hikes deferred to the second half and fully optimized cost levers.
Revenue growth for Tier-1 companies was at 1.4% QoQ in constant currency, while Tier-2 companies outperformed at 2.9% QoQ, reflecting greater momentum in the latter. Growth across major verticals such as BFSI, retail, manufacturing, and communications aligned for the second consecutive quarter, showing consistent sectoral recovery. Operating margins were stable, with Tier-1 companies achieving a slight 20 basis point improvement, while Tier-2 saw a modest 30 basis point decline due to compensation adjustments, which most firms absorbed with limited impact on margins.
Looking forward, IT services companies typically see stronger performance in the first half of the fiscal year, with the second half often impacted by seasonal furloughs and holidays. This year, most Tier-1 firms expect a similar furlough effect to last year, though some companies anticipate a milder impact. Certain Tier-2 firms are optimistic about achieving industry-leading growth, driven by a strong deal pipeline and growth in select verticals..
Metals:
In October 2024, Indian steel prices saw a modest increase of 2.1% month-over-month (MoM), reaching ₹48,000 per tonne, while Chinese steel prices surged by 7.4% MoM to $510 per tonne. The rise in steel prices was accompanied by a 4.9% increase in coking coal prices, which reached $170 per tonne, driven by expectations of improving steel demand. However, Indian steel production in September 2024 decreased by 4.9% to 11.7 million tonnes, while Chinese steel production also declined by 1.0% MoM to 77 million tonnes. Global steel production showed a similar downward trend, falling by 0.8% MoM to 144 million tonnes.
One notable development was the 6.8% MoM and 25.9% YoY increase in Chinese steel exports, which reached the highest level in recent years. This surge in exports, driven by weak domestic demand in China, remains a concern for the global steel market, as elevated exports from China could put pressure on prices in other regions.
On the input side, domestic iron ore prices saw a significant increase of 25.4% MoM to ₹7,400 per tonne, while international iron ore prices declined by 4.3% MoM to $96 per tonne. Additionally, manganese prices fell by 25.6% MoM to ₹16,041 per tonne, reflecting a mixed trend in steel inputs.
In the non-ferrous metals market, prices trended downward in October 2024. Aluminium prices decreased by 0.7% MoM to $2,592 per tonne, while copper and zinc prices fell by 3.3% and 0.8% MoM, respectively, to $9,506 and $3,031 per tonne. These declines were attributed to weaker demand from consuming industries.
Looking ahead, China’s steel production decline and record export levels indicate weaker domestic demand due to an ongoing slowdown in the Chinese economy. However, the economic stimulus introduced by China in October 2024 has provided a positive impact on both global and domestic steel prices. The sharp increases in coking coal and domestic iron ore prices could put pressure on the margins of some Indian steel companies in the coming quarter. Despite these challenges, domestic steel demand in India remains strong and is expected to grow by 8-10% in FY25.
While the outlook for domestic steel demand remains positive, the high valuations of steel companies limit further upside potential. As a result, the outlook for the steel sector remains neutral.
Chemicals:
The chemical sector experienced a broad increase in prices during October 2024, with several products showing positive month-over-month (MoM) movement. A notable example was the significant rise in caustic soda lye prices, which surged from ₹35/kg to ₹43/kg, benefiting key industry players. The agrochemical sector is expected to see gradual demand recovery in the latter half of FY25, offering a potential growth boost. Additionally, certain areas within the pharmaceutical sector are reporting robust growth, particularly in specialized therapies. Companies that are advancing in complexity and scale are likely to see substantial long-term benefits.
While some pricing trends were positive, others showed a mixed picture. Prices for Maleic Anhydride and Phthalic Anhydride fell by 3% MoM, leading to a slight impact on manufacturers in these segments. On the flip side, TDI prices increased by 5% MoM, which benefited producers in this market. Other commodities, such as Heavy Soda Ash and Acetic Acid, also saw a decrease in prices, down by 3% and 2% MoM, respectively.
Looking ahead, the commodity chemicals segment is expected to maintain a steady, range-bound trend due to stable domestic demand. However, competition from Chinese producers remains a significant factor, continuing to put pressure on prices, especially in the commodity space. Companies focused on high-value products and those expanding their capabilities into more complex and scalable offerings are anticipated to perform better than those relying on basic commodities in the long term.
Important events & updates
A few important events of the last month and upcoming ones are as below:
- India’s infrastructure output grew by 2% year-on-year in September 2024, recovering from a 1.8% decline in the prior month.
- The HSBC India Manufacturing PMI hit 57.5 in October 2024, up from 56.5 in September, reflecting stronger output growth and a surge in new orders, the fastest in nearly 20 years.
- The HSBC India Services PMI was revised up to 58.5 in October 2024, surpassing the flash estimate of 57.9 and September’s reading of 57.7. It marked the 39th straight month of growth in services, driven by strong sales and demand, exceeding expectations of 58.3.
- The HSBC India Composite PMI rose to 59.1 in October 2024, up from 58.3 in September, marking 39 months of growth. Stronger new orders in manufacturing and services boosted sales and employment.
- India’s annual inflation rate surged to 6.21% in October 2024, up from 5.49% in September, exceeding expectations of 5.81% and reaching the highest level in over a year. This marks a continued deviation from the RBI’s 4% target, intensifying expectations of delayed rate cuts.
- The US Fed cut their interest rate by 0.25% this month.
Fundamental outlook:
India’s market outlook remains optimistic, despite facing several global and domestic headwinds. Key economic indicators point to a resilient and adaptive economy that is gradually shifting towards sustainable growth. Despite a challenging October, the domestic economy is showing signs of underlying strength, particularly within sectors that are experiencing structural transformations.
While inflation rose to 6.21% in October, driven by food prices and monsoon impact, remains manageable. The RBI’s vigilant monetary policy and stable forex reserves offer a robust buffer against external shocks, especially with forex reserves remaining well above the $600 billion mark. This provides the central bank with flexibility to manage currency fluctuations and inflationary pressures, instilling investor confidence in India’s macroeconomic stability.
India’s digitization push continues to gain momentum. The surge in UPI transactions to record highs is a positive indicator of increasing digital adoption across the country. This signals healthy growth in the services sector, with the Services PMI rising to 58.5 in October. The robust demand in services, alongside India’s strong performance in manufacturing, highlights the country’s diverse economic base, making it more resilient to global downturns. Additionally, domestic power consumption, though modest, reflects a seasonal slowdown rather than a structural decline, pointing to steady demand recovery in the medium term.
India’s high forex reserves position the country as one of the most well-positioned emerging markets globally. The resilience of these reserves, coupled with government reforms and strategic fiscal measures, is fostering investor optimism. The stable macroeconomic indicators, along with the supportive policies, are likely to keep India’s growth trajectory intact, even amid global uncertainties.
In conclusion, while there are pockets of concern, India’s fundamentals remain strong. The recovery in services, the growing digital economy, and a solid fiscal and monetary framework paint an optimistic picture for the Indian market in the coming months. The country is poised for steady growth, and long-term investors may find favorable opportunities in sectors that capitalize on digital transformation, consumption, and infrastructure development.
Technical outlook.
The Indian equity market presents an optimistic outlook as it navigates through short-term volatility. While the major indices saw significant declines in October 2024, the market is poised for a potential rebound, supported by strong technical indicators and favorable high-frequency data points in 2025.
The Nifty 50 index, having faced a correction in October, is currently testing key support zones around 23,800-23,300. These levels offer potential buying opportunities as they align with long-term bullish trends. A successful rebound from these levels could signal a move towards the next resistance zones near 24,600-25,200, which may trigger a more sustained rally. A break above these resistance points could pave the way for further upside momentum.
The broader market is witnessing increased activity in sectors aligned with India’s growth story. The Services sector, as indicated by the rise in Services PMI to 58.5, remains a key area of strength, and its continued expansion supports a positive technical outlook for stocks related to digital payments, IT, and consumer services.
Other high-frequency indicators continue to paint an optimistic picture for India’s long term market outlook. The stable upward trajectory in UPI transactions indicates that the digital economy will remain a core growth driver. The modest increase in power consumption also points to resilience in the domestic economy, even as we move into winter. This stability is reflected in India’s forex reserves, which, while slightly lower in October, remain at high levels, providing a solid foundation for the Indian Rupee and offering support to broader market sentiment.
The market has experienced a correction mainly due to disappointing q2 results but as the valuation corrects it provides good opportunity in some pockets.
Outlook for the Global Market
US Market:
The U.S. Federal Reserve recently cut interest rates by a quarter of a percentage point, lowering the benchmark overnight interest rate to the range of 4.50% to 4.75%. This move reflects a recognition of a labor market that has “generally eased” while inflation continues to move toward the central bank’s 2% target. The Fed’s decision was unanimous, signaling confidence in the ongoing economic expansion despite a cooling job market. The central bank is expected to continue cutting rates, with projections placing the federal funds rate between 3.00% and 3.25% by the end of 2025. This ongoing easing of monetary policy will likely continue to support economic activity and investor sentiment.
The third-quarter earnings season in the US has largely unfolded as expected, with the economy performing stronger than initially anticipated, despite recent interest rate cuts by the Federal Reserve. This robust growth has allowed most companies to meet or exceed earnings expectations. However, the focus has shifted to fourth-quarter guidance, which has been more conservative. Despite stronger-than-expected economic activity, many businesses are preparing for a slowdown in Q4, leading to cautious revenue forecasts.
A positive development has been the effectiveness of cost-cutting measures implemented earlier this year. These efforts have led to improved operating margins, helping companies that have reported solid earnings for Q3, even if their future outlooks are weaker. While companies that have missed earnings expectations have seen significant declines in stock prices, those with strong results but conservative guidance have seen muted reactions. Given that market valuations remain above fair value, near-term index appreciation is limited, but the market may remain overvalued until earnings growth catches up.
Outlook for Gold
Gold prices in India have continued to face pressure, with recent market movements indicating that this trend could persist through mid-November. As of November 13, 2024, domestic gold prices reacted to India’s 14-month high inflation data, while international gold prices have also dipped to nearly a one-month low. The combination of a strong US dollar and a subdued global economic backdrop has exerted downward pressure on the yellow metal.
On the international front, gold prices on COMEX remained under $2,600, with a drop of $24, reflecting continued strength in the dollar index. In India, gold prices fell by over ₹500 on the MCX, with 10 grams of 22K gold priced at ₹70,840, and 100 grams at ₹708,400. Gold slipped below ₹75,000 for the first time since October 10, 2024. As the global economic environment remains challenging, with inflationary pressures and a strong dollar, the current downtrend suggests further weakness in gold prices may be likely. If COMEX gold remains below $2,600 and tests the $2,500 level in the coming sessions, domestic prices could fall towards ₹72,000 per 10 grams.
Looking ahead, while near-term weakness could persist, we believe gold will continue to hold its appeal as a safe-haven asset throughout 2024, particularly in the face of economic uncertainty and inflationary pressures. This makes gold an attractive option for hedging against inflation and currency volatility. As such, we maintain a neutral outlook for gold for the remainder of the year, expecting its appeal to endure even if prices experience short-term fluctuations.
What should Investors do?
The outlook for the Indian market in November 2024 presents a mixed but cautiously optimistic picture. While there may be some continued weakness in the near term due to the ongoing selling by foreign portfolio investors (FPIs) and broader market volatility, several factors suggest a potential recovery in the coming weeks. The intervention of domestic institutional investors (DIIs), who purchased ₹1.07 lakh crore worth of Indian stocks in October, has played a crucial role in mitigating the impact of FPI outflows. Additionally, mutual fund houses are sitting on a significant war chest of ₹2 lakh crore, which provides ample support to the market if FPI selling persists.
The festive season is expected to boost domestic consumption, potentially leading to stronger Q3 results for companies, particularly in sectors such as retail, consumer goods, and autos. This could provide a much-needed positive catalyst for the market in the near term. Furthermore, the regulatory framework remains supportive, with the Reserve Bank of India (RBI) and other regulators likely to step in should there be any drastic market movements.
Technically, the Indian market is currently trading around the 23,600 level, and while there could be some limited downside from this point, the strong domestic support should help cushion the market. The 23,300-23,800 range is seen as a key support zone, offering attractive entry points for investors. Given the fundamental strength of the Indian economy, which continues to show resilience, and the support from domestic investors, any short-term dips present an opportunity for long-term investors.
Disclaimer:
This article should not be construed as investment advice, please consult your Investment Adviser before making any sound investment decision.
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